ISS said that the merged company will start out with heavy debt burden and that MetroPCS Communications Inc (NYSE:PCS) shareholders aren’t getting their fair share under the proposed terms. ISS said MetroPCS Communications has capabilities to thrive as a standalone company. Glass Lewis said Friday that the merger significantly undervalues MetroPCS. That’s a cause of worry for the telecom giant as many institutional investors on the basis of ISS recommendations. MetroPCS Communications Inc (NYSE:PCS) shareholders will vote on the merger during the company’s special meeting on April 12.

In this reverse merger, comparatively smaller MetroPCS Communications Inc (NYSE:PCS) would swallow the larger rival T-Mobile USA. Many investors are furious because terms of the deal state that Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE), the parent company of T-Mobile USA, will own 74 percent of the new entity, and MetroPCS shareholders will get only 26 percent in the merged company. MetroPCS Communications will also pay $1.5 billion to its shareholders in the process.

Hedge fund giants John Paulson and P. Schoenfeld Asset Management have decided to vote against the deal. Paulson & Co. is the biggest shareholder of MetroPCS Communications Inc (NYSE:PCS). They said the newly formed debt-laden company would lose its ability to compete with peers. The telecom company’s second largest shareholder Madison Dearborn Partners said it supports the merger. The Department of Justice and the Federal Communications Commission has already approved the deal.

In an earlier letter, MetroPCS Communications Inc (NYSE:PCS) told shareholders that the merger will fulfill critical spectrum needs and eliminate the competitive disadvantages of the company. The newly formed company will have a presence in areas where standalone MetroPCS Communications has negligible presence. The two companies want to pool their networks and resources to compete with AT&T Inc. (NYSE:T), Sprint Nextel Corporation (NYSE:S) and Verizon Communications Inc.(NYSE:VZ)

Author: Vikas ShuklaAlthough he has a background in finance and holds an MBA, Vikas Shukla is a technology reporter. He has a strong interest in gadgets, gizmos, and science. He writes regularly on these topics. - He can be contacted by email at vshukla@valuewalk.com